The SEC Wants You to "Friend" Corporate America

Life got a little bit harder for investors this week. And believe it or not, the SEC is to blame.

Aiming to accommodate corporate "social networking" efforts, the SEC on Tuesday gave companies permission to announce major corporate news on social-networking sites such as Facebook and Twitter -- rather than through online searchable press releases or filings on the SEC's own website, as had previously been the typical practice.

But why?

A bit of background On July 1, 2012, Netflix CEO Reed Hastings went on Facebook to crow over the momentous news that his company had just finished sending out 1 billion viewing hours to Netflix streaming subscribers in June. Five months later, fellow tech entrepreneur Elon Musk -- CEO of electric-car company Tesla Motors -- followed in Hastings' footsteps by going on Twitter to announce that for one week in December, his company was cash-flow positive. (A whole week, eh. Congratulations?)

What these two events have in common is that they both seemed to run afoul of Securities and Exchange Commission regulation FD. Reg FD, as it's commonly called, mandates that whenever a company releases information that's "material" to its business, it must do so in a manner that's "broad" and "non-exclusionary."

This language was drafted to curb the practice of companies revealing useful data only to their favorite investment-banking analysts -- a club that's certainly not broad -- and not letting the rest of us investors know what was up until after the favored few had heard it, which is without a doubt "exclusionary."

Now here's the problem. Over the dozen years since Reg FD came into effect, companies have followed the law carefully, releasing information in ways and in places where people were likely to find it. Generally speaking, material announcements came out as press releases that showed up promptly in the companies' ticker feeds on Yahoo! Finance. They were also usually filed as 8-K filings with the SEC.

As a result, anybody who wanted to know what was going on knew how to find out. There were basically just two websites to check: Yahoo's and the SEC's.

Life just got complicatedI tell you this as a preface to explaining why I, for one, am not thrilled with the SEC's decision to let companies disclose material information on their Facebook pages.

Why not? Listen -- it was bad enough when the SEC gave the greenlight in 2008 to companies like Google who wanted to stop paying publication fees to PRNewswire and start self-publishing their most interesting announcements on their corporate websites. Ever since, more and more companies have been taking the SEC up on its offer, leaving investors with many places to look for corporate news updates, rather than just two.

The road to hell is paved with good intentionsSure, the SEC says companies still need to take "steps ... to alert the market about which forms of communication a company intends to use for the dissemination of material, nonpublic information, including the social media channels that may be used ... [because without] such notice, the investing public would be forced to keep pace with a changing and expanding universe of potential disclosure channels, a virtually impossible task."

But that's just my point. By adding Facebook, Twitter, and Google+ to the mix, the SEC is making investors' lives more complicated -- not less. Now, any time a company suggests that it might disseminate information via its Facebook page in the future, we all have to rush out and "friend" it just to make sure that when news comes out, we'll hear it at the same time everyone else does.

And really, do you want to have to "friend" ExxonMobil and Bank of America? Do you want to wade through piles of corporate junk mail on your Facebook feed just to be sure you don't miss any of the good stuff? Because now you'll probably have to.

A modest suggestion Personally, I think the SEC made a serious error in this report. If a company wants to "double notify" people about things it thinks are interesting, that's fine. Publish on the corporate website. Publish on Facebook. Heck, go wild and publish on MySpace or Friendster if you want to. But any time a company does this, it should also have to quickly duplicate the notice in an 8-K filing with the SEC so those of us who don't want to "friend" the corporation can still get the 411.

Otherwise, in trying to make life easier for corporate PR officers, the SEC is just making life harder for the rest of us.

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Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, Netflix, and Tesla Motors. The Motley Fool owns shares of Facebook, Google, Netflix, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.